Establishing a buyer seller relationship is an essential step in commerce. The seller can attract buyers through advertising, direct solicitation, or through the sales activities of brokers and buyers. Currently, sellers can solicit buyers through traditional methods such as media advertising, and face to face selling, or they can utilize the relatively new technology of e-commerce by advertising on the Internet. Once interested buyers are attracted, transactions can proceed to closure in many ways.
Establishing a buyer seller relationship in traditional ways may result in a contract which then requires execution. The seller must provide the product, and the buyer must pay for the product. If the buyer and seller are in two different locations, a number of other issues are raised. For example, the credibility of each party, the authenticity and qualification of the product, the terms under which the buyer must take possession, the way in which the product will be shipped, who will pay for shipping and handling, and the mode of payment, all become major issues with which both parties must deal. Often buyers and sellers utilize a funding agent and establish a letter of credit for transfer of funds on products that must be shipped. This is costly and usually only available to sellers and buyers of substantial size, and for orders of significant volume. Carloads of grain may be sold in this manner, however, it would not be cost effective to use such a system for one gold coin.
Currently, buyers and sellers may use the Internet for establishing relationships. Current means for trading on the internet include order matching, catalogue sales, and auctions. Order matching is used most effectively for financial products, such as, for instance, stocks, bonds, and futures. These current systems may generate information or conduct a trade, however, the fulfillment of the transaction is purely electronic and doesn't involve the physical transfer of the item being traded. The price is tied to a limited access market, such as the New York Stock Exchange, or Chicago Board of Trade. These markets are market focused, not product focused. Price is determined based on the trades in the market.
In traditional order matching systems, end customers typically do not have access to true market pricing. The channels to view, place, and execute orders are tightly controlled by large players (i.e. institutions). Traditional commodities markets, such as the New York Mercantile Exchange (NYMEX), allow only limited access and are open only during certain times of the day. Actual commoditized products are not typically traded. Instead, large paper contracts for future delivery of bulk commodities are the focus of these markets. For example, a typical platinum contract is for future delivery of 50 ounces of platinum at a total value of approximately $30,000 each. These contracts are not feasible for purchase and delivery by small investors due to their high value, lack of fractional distribution, as well as the fact that the contracts themselves are impossible to hold over an extended period of time as they are set to expire. In fact, the primary purpose of the traditional commodities exchange is to facilitate hedges for large players in a particular industry in which physical delivery is not normally made.
In other related market services, pricing for product is derived from the most actively traded contract month. In the traditional market, this has become the standard because the largest players of an industry, who control the distribution channel, use paper contracts for hedging purposes when conducting their large trades. Therefore, pricing for the actual products is not true or real as pricing is not in a real time environment and doesn't directly represent the true voice of the consumer or end user of product. For example, a large supplier of American Gold Eagles one ounce coins might sell only 100 ounce lots at a price that is based on the most actively traded month for a futures contract on the New York Commodities Exchange (COMEX). The broker that is reselling from the 100 ounce lots might sell 20 ounces at a time to retail jewelry or coin stores and will price product in the same manner. The broker will likely include an additional premium or commission for transaction costs and profit margin. The retail jewelry or coin store might resell one at a time to individual investors in the same manner. The total transaction cost ultimately paid by the end customer can be substantial considering that each market participant in the distribution chain also allows for a market risk factor in case the contract price of gold (100 ounces) has dropped. The price of the product might change due to price of the paper futures contract changing even though the actual supply and demand of the product has not changed. This practice doesn't allow for true market pricing of each individual commoditized product as dictated by real buyers and sellers.
Due to controlled (or lack of) access to markets, current trading platforms give advantage to large volume buyers and small buyers must pay a premium price due to brokerage fees and minimum trade sizes. Additionally, large volume orders are matched with similar volumes, and it is not advantageous for large sellers to have an order filled by many small buyers, because they must transact many contracts and pay for many shipments. Brokers may combine incoming trades from small buyers or sellers and conduct one transaction to fulfill his obligation, however, the broker does not represent both parties to a transaction. In fact, it is common practice for brokers to actually buy at one price, sell to their customer at a higher price, and collect a commission from their customer, all at the same time. This practice is commonly referred to as “making or playing the spread”. In such a case, the end buyer or seller obviously has no true voice in the marketplace.
Catalogues provide buyers with many choices of products to purchase with a set asking price. The asking price includes margins. As the price of the product fluctuates, the asking price must be updated by the seller, sometimes on a frequent basis. On some sophisticated catalogues, pricing might be tied to a certain suppliers price schedule or even to a futures exchange. For example, one online catalogue for precious metals products is linked to the NYMEX and COMEX futures contract exchange for pricing. Once an order is placed on the catalogue, the order still has to be fulfilled with the actual product sold, which is unavailable on the exchange. This form of pricing is not accurate and does not ensure efficient or accurate pricing and is not automatically fulfilled. Current catalogue systems are not integrated with an order matching system and therefore do not benefit from real time pricing with immediate order fulfillment. The fulfillment and shipping requires a series of steps to completion.
Auctions are another means of trading on the internet. Sellers list products and buyers bid on the price they want to pay for the product. Auctions are time defined because the product is offered for a set amount of time and is matched to the highest offer at the expiration of the auction. In addition, the underlying value of the product might be fluctuating during that time-frame. A bid placed on the initial offer date may not be a fair price one week later for some goods, such as precious metals, coins, and gemstones. In addition, auctions do not provide for combining orders. Even though there may be several buyers, only one gets the item because buyers are pit against each other. Pricing is determined by the bidding, not the real time value of the item. In an auction format, the buyers and sellers must deal directly with each other, are often known, and share the risk of the transaction. Furthermore, it is difficult and time consuming to buy from or sell to a large number of parties at the same time.
For commoditized products, the current systems available for commerce do not provide for distribution efficiency, do not allow small players to participate equally, and do not provide a real time pricing system based on real time supply and demand principals. Thus there is a need in the art for a system and method for providing secure trading, qualification, and delivery of a commoditized product. There is a further need for providing individual buyers and sellers with an anonymous, non-discriminatory means to exchange product without the burden of authenticating transaction elements and details including buyer/seller qualifications, product qualification, payment, and order fulfillment. There is a further need for a continuous market that is accessible and open 24 hours daily, seven days a week and 365 days a year. There is also a need for automatic price determination and automatic price matching that is not limited by market makers or by uneven buyer to seller units. And further there is a need for efficient distribution of commoditized products. Also, there is a need for buyers to be able to purchase from more than one seller at a time and receive delivery, if they so choose, at one time with one shipment, and the ability to pay one source. There is also a need for a seller to be able to efficiently sell to more than one buyer at a time, and be able to ship one package to one source, if they so choose, and receive a payment from one source. There is also a need for a secure payment method by which seller can receive payment prior to delivering product.